Void deed?

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    Void deed?

    Hello all

    We leased commercial offices to a LTD company and the lease included surety in the form of one of the directors. The company seems to have ceased trading and the surety has been sent a demand for payment. Nothing was received so our solicitor has made a county court claim against the surety for the overdue rent (5K). The surety is defending the claim on the following grounds: The lease was signed by both directors and returned to laywers by post as per Company Act 2006, the lawyer forgot to get the director to sign as an individual, so he then had the surety sign an A4 paper with "executed as a deed" by the director as an individual and he later added it to the original deed. It was signed at the directors office in front of the lawyer but was not part of the deed nor was the deed present, so the surety is pleading "non est factum" as he could not execute a deed if the deed was not present at the time of signing.

    Where do we stand? Anyone have any idea? All help greatly received!
    thanks

    #2
    When you say "the lawyer forgot..." do you mean the company/guarantor's lawyer or your lawyer?

    Comment


      #3
      Thanks for your reply, it was the guarantors lawyer...

      Comment


        #4
        Does his solicitor admit to this?

        The Defendant could easily be lying.

        Comment


          #5
          In that case, and assuming it is also the case that the defence is the first you heard of the circumstances surrounding the execution of the counterpart lease, I think we can say you should have no problem.

          The counterpart was submitted to your solicitor apparently in order. I think that has to amount to a representation that the document was correctly executed that your solicitor can rely on. If it were not the case, then every time a transaction was completed the person relying on the document would be put on enquiry as to the circumstances of its execution, which would be intolerable and make the conveyancing system unworkable.

          There is a case (regrettably I cannot recall its name) where a mortgage (I think it was) was signed by the borrower in one room and then witnessed in another where the witness had been all the time. Strictly, that meant it was improperly executed as a deed needs to be signed in the presence of the witness. The court said however that as the bank were ignorant of the circumstances they were entitled to assume that the deed had been properly executed. I think the principle the court applied in that case must apply to yours.

          Whilst I think the above deals with the problem, we can consider non est factum. That is a plea that you were under the impression that the document you signed was something quite different from the document you did sign. It usually, but not necessarily, involves some fraud. If you are pleading non est factum you are admitting you signed something and (although the point perhaps does not usually come to the fore as such) you must have an idea of what it is you thought you signed. In this case therefore if the question is asked: What did the guarantor think he was signing? he is going to have a bit of a problem answering since he says he signed what was effectively a blank sheet of paper. Clearly no element of fraud on your part was involved and it was his own solicitor who sent him the sheet of paper and must have explained that he was going to attach it to the counterpart. Non est factum is always difficult to prove anyway and I would suggest it must be virtually impossible to plead it successfully when you sign a document presented to you by your own solicitor. The only exception would be if your solicitor was involved in a fraud against you.

          We can consider whether there is any requirement that all the parts of a deed need to be in the same place when it is signed. Not sure I know the answer to that. It does not happen very often. I cannot in any event think that it is an essential requirement that the pages of a deed are attached to each other, though that is invariably (or perhaps I should say almost invariably) the case.

          Finally, we come to whether the equitable maxim Equity regards as done that which ought to have been done applies. On the sale of freehold land, where a vendor sells and imposes covenants on the purchaser, the purchaser should sign the conveyance/transfer. If he does not and accepts the conveyance by paying over the purchase money he is still deemed to have signed as he cannot take the benefit without the burden. The same applies where a lease is granted. If the tenant does not sign the counterpart and accepts the lease he is bound by the tenant's covenants and conditions. It may not be possible to extend the principle to a guarantor who does not sign, but the circumstances of this case seem to be such that, even if technically the guarantor did not execute the counterpart, he should be deemed to have done so.

          In summary, the circumstances are that the guarantor must have intended to be bound and he or his solicitor (it amounts to the same thing) produced a document that was accepted on the basis that he was bound. It would be unconscionable for the guarantor to deny he was bound.

          Should all the above fail, you need to consider whether there is a case against the solicitor.

          Comment


            #6
            Originally posted by Don Beech View Post
            Does his solicitor admit to this?

            The Defendant could easily be lying.
            There's that too!

            Comment


              #7
              Thank you all for your time, it is sincerely appreciated. The defendant has produced witness statements to confirm his allegation, and we have looked deeper into this.

              Section 1(3) Law of property (MP) 1989 provides:

              (3)
              An instrument is validly executed as a deed by an individual if, and only if— .
              (a)
              it is signed— .
              (i)
              by him in the presence of a witness who attests the signature; or .
              (ii)
              at his direction and in his presence and the presence of two witnesses who each attest the signature; and .
              (b)
              it is delivered as a deed by him or a person authorised to do so on his behalf.

              "it" refering to the instrument, in this case "it" is the deed, and I refer to the Mercury case v HMRC

              Our solicitor seems rather confused by this situation so hence the postings.

              We feel because he did not sign the deed in its "final version" that he may have a legal defence? Whether it was his intention to be bound is not the legal question as the law says "it" being the instrument i.e the deed, must be signed by the individual?

              Further comments are very welcome.

              Thank you

              Comment


                #8
                Originally posted by Lawcruncher View Post
                In that case, and assuming it is also the case that the defence is the first you heard of the circumstances surrounding the execution of the counterpart lease, I think we can say you should have no problem.

                The counterpart was submitted to your solicitor apparently in order. I think that has to amount to a representation that the document was correctly executed that your solicitor can rely on. If it were not the case, then every time a transaction was completed the person relying on the document would be put on enquiry as to the circumstances of its execution, which would be intolerable and make the conveyancing system unworkable.

                There is a case (regrettably I cannot recall its name) where a mortgage (I think it was) was signed by the borrower in one room and then witnessed in another where the witness had been all the time. Strictly, that meant it was improperly executed as a deed needs to be signed in the presence of the witness. The court said however that as the bank were ignorant of the circumstances they were entitled to assume that the deed had been properly executed. I think the principle the court applied in that case must apply to yours.

                Whilst I think the above deals with the problem, we can consider non est factum. That is a plea that you were under the impression that the document you signed was something quite different from the document you did sign. It usually, but not necessarily, involves some fraud. If you are pleading non est factum you are admitting you signed something and (although the point perhaps does not usually come to the fore as such) you must have an idea of what it is you thought you signed. In this case therefore if the question is asked: What did the guarantor think he was signing? he is going to have a bit of a problem answering since he says he signed what was effectively a blank sheet of paper. Clearly no element of fraud on your part was involved and it was his own solicitor who sent him the sheet of paper and must have explained that he was going to attach it to the counterpart. Non est factum is always difficult to prove anyway and I would suggest it must be virtually impossible to plead it successfully when you sign a document presented to you by your own solicitor. The only exception would be if your solicitor was involved in a fraud against you.

                We can consider whether there is any requirement that all the parts of a deed need to be in the same place when it is signed. Not sure I know the answer to that. It does not happen very often. I cannot in any event think that it is an essential requirement that the pages of a deed are attached to each other, though that is invariably (or perhaps I should say almost invariably) the case.

                Finally, we come to whether the equitable maxim Equity regards as done that which ought to have been done applies. On the sale of freehold land, where a vendor sells and imposes covenants on the purchaser, the purchaser should sign the conveyance/transfer. If he does not and accepts the conveyance by paying over the purchase money he is still deemed to have signed as he cannot take the benefit without the burden. The same applies where a lease is granted. If the tenant does not sign the counterpart and accepts the lease he is bound by the tenant's covenants and conditions. It may not be possible to extend the principle to a guarantor who does not sign, but the circumstances of this case seem to be such that, even if technically the guarantor did not execute the counterpart, he should be deemed to have done so.

                In summary, the circumstances are that the guarantor must have intended to be bound and he or his solicitor (it amounts to the same thing) produced a document that was accepted on the basis that he was bound. It would be unconscionable for the guarantor to deny he was bound.

                Should all the above fail, you need to consider whether there is a case against the solicitor.
                It was correctly signed by the Company as a deed and represented as such, but as for the guarantor..? The lease was with the Company, not the guarantor.

                Comment


                  #9
                  And also, the copy of the deed holds some water too, each page is numbered in order, as a lease deed should be, even the blank spacer sheets, but the very last page with the guarantors signature...is not numbered yet there was plenty of space on the Company directors signature page to include the guarantor, should we be worried...?

                  Comment


                    #10
                    if, and only if
                    Consider why these words are there.

                    If you say:

                    I'll answer the door if you ring

                    it means that if anyone rings you will answer the door. It does not rule out you answering the door if anyone knocks.

                    However if you say:

                    I'll answer the door if, and only if, you ring

                    then you have set a strict condition that must be complied with before you answer the door. Knocking just will not do.

                    So, by using the words if, and only if what the statute is doing is setting out strict conditions that must be fulfilled for a document to be validly executed as a deed by an individual.

                    It is saying:

                    There is only one way for an individual to validly execute a deed and this is it.

                    It is not saying:

                    If a deed is executed this way you can be sure it is valid, however there are also other valid ways.

                    Thus far, the argument seems to be with the guarantor if he is insists the deed was not executed in accordance with the Act. (We can come later to the question of whether simply signing a page which it was intended should be placed at the end of the lease amounted to executing the deed.)

                    However, there is a principle of law that when it comes to formalities no statute may be used as "an engine of fraud" (Rochefoucauld v. Boustead). The argument for the principle is that if a statute is designed to prevent fraud, then by stopping the statute from being used to perpetrate a fraud the statute is actually being observed.

                    Applying this principle, it has to be the case that anyone presented with a deed which on the face of it appears to have been validly executed is entitled to assume it has been validly executed and to rely on it. This simply has to be the case. If it were not, conveyancing practice (and a lot else) would be undermined. It would be a simple matter, for example, to sign a mortgage at home; take it next door and get it witnessed; send it to the building society; collect the cash, and then inform the building society that it did not have a valid mortgage. The only exception would be if the person relying on the deed knew or was informed before acceptance that the formalities had not been complied with.

                    If the guarantor's solicitor is relying on the Mercury case I can see why, but I do not think it helps. In that case it seems that a signature page was prepared and signed with the intention of attaching it to a deed when it had been finalised i.e. the final form of the deed did not exist at that time of execution. That is not what happened in your case. The deed had been agreed and indeed executed by the company, but provision for the guarantor to execute had been omitted in error. The attestation clause is not really part of the deed, or at least its provisions. But I think that is not the point. The point is that your solicitor was presented with a deed that appeared to be in order. Further, the Mercury case was a tax case and it was the person who executed the deed (who knew or ought to have no known that the execution was invalid) who sought to maintain it was valid.

                    And also, the copy of the deed holds some water too, each page is numbered in order, as a lease deed should be, even the blank spacer sheets, but the very last page with the guarantors signature...is not numbered yet there was plenty of space on the Company directors signature page to include the guarantor, should we be worried...?
                    Whilst any document that has some pages numbered and some not and/or which contains spaces may give rise to a suspicion of fraud, it is not conclusive evidence of fraud. In the case of lease and counterpart any doubts as to whether text has been added or removed from either can be resolved by comparing the two (but if course that is not an issue). You do not need to worry about the space because the guarantor has explained it.

                    Think what has happened here. Due to an oversight, the attestation clause for the guarantor was omitted. The guarantor's solicitor dealt with the matter by printing an extra page and sending it to the guarantor as a loose page and when it was returned attached it to the rest of the counterpart. It surely must be wrong if the guarantor is let off the hook because of an oversight and his solicitor did it the way he did (presumably) for quickness and convenience, when he would not be let off the hook if there had been no oversight and the page had been attached to the counterpart when he signed it.

                    The basic point however that I do not think the guarantor can get away from is that a representation was made that the counterpart was validly executed. Whilst the mere fact that the counterpart was sent by his solicitor to yours is sufficient, any statement in the accompanying letter that the counterpart was enclosed "executed by the tenant and guarantor" (or words to that effect) is a further assurance that the deed was validly executed.

                    If your solicitor is puzzling over this then I suggest you copy my observations and present them to him for consideration. Even if I am wrong, it should still give him something to think about.

                    Comment


                      #11
                      Originally posted by Lawcruncher View Post

                      However, there is a principle of law that when it comes to formalities no statute may be used as "an engine of fraud" (Rochefoucauld v. Boustead). The argument for the principle is that if a statute is designed to prevent fraud, then by stopping the statute from being used to perpetrate a fraud the statute is actually being observed.
                      Thank you but we do not see any deliberate fraud in this case though we see the relevance. I think the guarantor is likely to rely on the defence of "mistake" in the fact that he believed what he signed (which was not the deed) was something other than a guarantee/surety of the Company. Until court (if it goes that far) we may not know what it was he "thought" he was signing. As to the representation that the deed was fairly executed, this does not allow us a defence should it come to light that it was not? Though perhaps we may have a case against the Company's solicitor?

                      Given the facts of the case, guarantor did not sign the deed as a document whole, his signature page was later added to the deed, it is the only page of the deed not numbered, and the fact that he "thought" he was signing something else (say for instance as a witness) gives us doubt as to whether we should further pursue this case in court.

                      What are his options on reliance to this, I think the main points of FACT are:

                      The deed was not signed as a whole at the point when signed by the Company (of which he is a director).
                      He signed a signature page as an individual which was added to the deed.
                      This is the only page not numbered in the deed.

                      What could his defence be and would it hold up in court?

                      Any additions much appreciated...Thank you

                      Comment


                        #12
                        Many a claim has failed on a point of law, and this may well be one of them. But I think the guarantor will find it difficult to state he did not appreciate that he was providing a personal guarantee as he appears to have signed the lease as a Director of the tenant company. This proves that he had seen and approved the lease, at least from the tenants point of view. It would be a crazy argument for him to state he only read those parts of the lease that related directly to the tenant and not the guarantor.

                        Does the statement from the guarantors solicitor state that as far as they were aware the guarantor knew exactly what the page being signed related to, or something along the same lines?

                        Comment


                          #13
                          Originally posted by Don Beech View Post
                          Many a claim has failed on a point of law, and this may well be one of them. But I think the guarantor will find it difficult to state he did not appreciate that he was providing a personal guarantee as he appears to have signed the lease as a Director of the tenant company. This proves that he had seen and approved the lease, at least from the tenants point of view. It would be a crazy argument for him to state he only read those parts of the lease that related directly to the tenant and not the guarantor.

                          Does the statement from the guarantors solicitor state that as far as they were aware the guarantor knew exactly what the page being signed related to, or something along the same lines?
                          Thank you for taking the time to reply and that is a valid point, as he did sign the lease as a director so presumably must be aware in some capacity of the content of said lease, however, that said, it is the capacity in which the siganture was supplied which is the main point and his intention at that point. If it is proven that his signature was not deemed part of the lease or shall we say as execution of the lease (as a point of law) then is it relevant as to what his intention was anyway? I think this is an interesting point for all LL and Solicitors regards to lease deeds and needs some clarification. Even if it was his intention to execute the deed (no fraud evident), because it was not performed as required by law, then how can it be legally binding?

                          Thank you

                          Comment


                            #14
                            Originally posted by dieseltuner View Post
                            Thank you but we do not see any deliberate fraud in this case though we see the relevance.
                            In the phrase "an engine of fraud" "fraud" does not necessarily involve an intention to deceive. We can distinguish between "actual" (that is criminal) fraud and "constructive" fraud. Constructive fraud is where there is no intention to deceive, but the consequences are the same as if there had been an actual fraud and it would be against the interests of justice or contrary to public policy to allow it.

                            Originally posted by dieseltuner View Post
                            I think the guarantor etc
                            I think, with respect, that you may have failed to grasp the all important point of my previous posts. The circumstances surrounding the execution of the counterpart are not important. What is important is that a representation was made. I am not sure I can usefully add to what I have said, but consider the following:

                            What usually happens when a lawyer sends a deed to a client for signature? He sends it with a letter that says something like the following:

                            I enclose the [whatever the deed is] for signature. Please sign the document where indicated in the presence of an independent witness who should then sign and write his or her name and address where indicated. When this has been done please return the document to me.

                            If the document is returned bearing the signature of the client and the signature etc of the witness the lawyer does not in fact know if the instructions set out in the letter were followed exactly. It is quite possible that the client opened the letter while he was having his breakfast, took out a pen and signed the document, popped into his neighbour's and got the neighbour to sign and popped the document in the post on his way to work. If that happened, the deed was not in fact executed in accordance section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. The lawyer will not trouble to check that there has been strict compliance with the Act. The attestation clause in the deed will say something like:

                            Signed by John Smith in the presence of:

                            Anyone later relying on the deed is entitled to rely on the words "in the presence of"; they are a representation that the deed was signed in the presence of the witness. The client cannot later argue that the deed is void because the witness was not present when he signed.

                            Of course in this case no one is arguing that the deed was not executed in the presence of a witness, but the principle I have outlined still applies. Neither you nor your solicitor was aware of the (somewhat unusual) circumstances surrounding the execution of the counterpart. The matter was (presumably) completed in the usual way that solicitors complete leases. Everything appeared to your solicitor to be in order. There was nothing to cast doubt on the validity of the execution of the counterpart by the guarantor. He, and therefore you, were entitled to assume that the guarantor was bound.

                            Certainty of outcome can never be guaranteed in litigation. As Don Beech suggests, the devil may be in the detail. I can though see no devilish detail here which undermines you case. Whilst as a property lawyer I know the basic law relating to deeds and their execution, I am no expert on the finer points that are unlikely to arise more than once or twice in a legal career. I am sure your solicitor is no different. Even so, I am more than moderately confident that the arguments I have put forward are sound. Even if they are not sound they have to be worth putting to the guarantor's solicitors. Those arguments, or arguments along the same lines, need to be put. I do not think you should contemplate withdrawing until there is a response to the arguments. When the response is to hand you can with your solicitor review your position, perhaps taking counsel's opinion if the amount you stand to lose warrants it.

                            If your solicitor is scratching his head, and he cannot be blamed if he is as the facts are unusual and the law far from simple, then do as I suggested above and copy my comments and hand them to him.

                            Comment

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